Ford’s President: Time to Get Serious About Cars
Not long ago, some on Wall Street warned that Ford Motor Co. might tumble into bankruptcy.
Then family scion William Clay Ford Jr. took over as chief executive in a tumultuous management overhaul, and recently the company swung back into the black.
To get there in the last 30 months, Ford shuttered five plants, cut its U.S. workforce by almost 15% to 72,000 from 84,000, squeezed suppliers on costs and improved its vehicles’ reliability.
The result: Ford’s profit more than doubled in the first six months of 2004 from the same period last year, rising to $3.1 billion. Revenue climbed about 8% to $87.5 billion.
Big challenges, though, remain. Ford President Nick Scheele discussed them -- as well as some rich opportunities -- in an interview Friday in Los Angeles.
Scheele, who is British, joined Ford in England in 1966. He was named president of Ford’s Mexico operations in 1988, later became chairman of Jaguar and then chairman of Ford of Europe. He was promoted to corporate president in 2001.
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Question: Last decade, there was talk of Ford overtaking General Motors Corp. to become the world’s biggest carmaker. Now, Toyota Motor Corp. is challenging Ford’s second-place position, and some analysts still worry about your long-term future. Where did Ford slip?
Answer: We were making our money on trucks. As the [U.S.] truck market expanded to 53% of the passenger vehicle market, we could not make enough trucks. But we were making that money on just two or three vehicles and losing money on everything else.
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Q: Don’t trucks still account for about two-thirds of your unit sales?
A: But we saw that we couldn’t keep milking the truck market while competitors were climbing into it more and more every day. That caused some sobering reactions. I don’t like to think that we are too truck-heavy, but we are light on passenger cars and we are now stressing development of cars. We’ve got 10 new models [for the company’s Ford, Mercury, Lincoln, Mazda, Jaguar and Volvo brands] coming in the future off of the platform for the new Mazda 6 mid-size sedan, including the Ford Fusion in 2005. That will stand us in good stead.
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Q: Where are the growth opportunities in the next few years?
A: Crossovers will be big, the crosses between cars and SUVs. And we see some movement in the “B” class cars -- subcompacts, that is -- led by trends in California. We will need to find a way to compete profitably in that segment.
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Q: What about overseas?
A: Toyota is clearly out to gain market position. They say they want 15% of the global share, and I believe they’ll get there. That means they’d overtake us and GM if nothing changes. It is up to us to decide what we’re going to do about it, and we must tackle Asia. It is the growth market. And Asia isn’t just China; it is India and Thailand and Indonesia.
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Q: China is a fast-growing auto market, and you got a late start there. Ford sold just 130,000 cars in China last year, while GM sold about 600,000. What are the long-term consequences of being late to the party?
A: True, we didn’t get into China early, but I don’t think we missed the boat. We’ve put on a third shift in our Chongqing factory [in a western province] and will be at 180,000-a-year capacity by the end of next year. And the Nanjing [east coast] factory will have 200,000 capacity. The China market, until two years ago, was largely government controlled. But now it is largely privately controlled and it is exploding.
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Q: And it is very profitable?
A: Cars sell there at about 50% above international prices. But prices are falling, and it is getting more competitive.
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Q: Will you export cars made in China, perhaps to the U.S.?
A: Right now the China market can take everything we can possibly manufacture there. And in the long haul, because they build cars in China to European [safety and environmental] regulations, not to U.S. regulations, exporting will be to other Asian countries and possibly into Europe.
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Q: The green car movement is gaining momentum in the U.S. What’s Ford up to?
A: Well, the Holy Grail is the hydrogen fuel cell. But with all that needs to be done to make it practical, I believe it is still 15 years or more before it will be a significant part of the market. You’ve got to develop a hydrogen [fuel station] infrastructure, and you’ve got to have more hybrids [gas and electric-powered vehicles] because the hybrid powertrain control strategy leads to fuel cell controls.
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Q: So will you pursue hydrogen fuel cells or hybrids?
A: I see us going down both roads.... On the hybrid side, we have the hybrid Escape [SUV] coming this year and two other hybrids shortly after that. They will sell for about $3,000 more than the equivalent gasoline model, and we’ve got to press on getting costs down. We need to because while there are some people willing to pay that premium, there probably are not enough to sustain a 10% market share for hybrids that we need.
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Q: It sounds as if a breakthrough in alternative fuels is still a long way off.
A: There’s nothing free. We have got to talk this environmental issue through, but not on an emotional level.... We’ve got to do it on a technical and scientific level and we must determine our priority -- reducing emissions or improving fuel economy. There’s a different answer for each one.
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Q: Is there anyone short of the White House with the leadership to pull it all together?
A: Unfortunately not. The discussion must be at the national level.
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Q: Hybrid-powered cars, like the Toyota Prius, are very popular in California. But Ford has said it will only build 20,000 Escape Hybrids. Are you artificially limiting supplies?
A: We’ve got annual capacity for 25,000. It is constrained by the supply chain. And yes, that is significantly under demand. So we must improve the supply chain and develop the second-generation car.
